Appeals court upholds alcohol distribution laws

SEATTLE – Costco Wholesale Corp.’s effort to beat Washington’s post-Prohibition liquor laws in hopes of driving down prices for beer and wine came up short Tuesday, with a three-judge federal appeals court panel saying most of the rules are valid.

The ruling from the 9th U.S. Circuit Court of Appeals largely overturned decisions in 2005 and 2006 by U.S. District Judge Marsha Pechman, who found most of the rules – including minimum price markups – to be in violation of federal antitrust law.

Costco, based in suburban Issaquah, sued the state in 2004. Regulators insisted that the 21st Amendment, which ended Prohibition, gives states wide powers to regulate the sale and distribution of alcoholic drinks.

“It’s a real win for the state,” said Assistant Attorney General Martha Lantz.

Washington has a three-tiered system for distributing beer and wine. Breweries and wineries sell to wholesalers, at a minimum markup of 10 percent, and wholesalers sell to retailers, such as Costco, again at a minimum markup of 10 percent.

At issue in the case were nine laws governing the distribution of beer and wine; the appeals judges upheld seven of them, including the automatic markups, a ban on sales from one retailer to another, a ban on having alcohol delivered to a warehouse and a ban on quantity discounts.

The judges also upheld a requirement that manufacturers sell to all wholesalers at the same price and that wholesalers sell to all retailers at the same price.

But the judges invalidated a requirement that manufacturers and distributors post their prices with the state in advance and keep prices the same for a month.

David Burman, a lawyer for Costco, said no decision had been made about seeking a rehearing.